The present invention relates generally to improved techniques and systems for automating the computation of bids for mortgage foreclosure sales. More particularly, the invention relates to advantageous techniques for electronic transmission of foreclosure sale bid instructions using a publicly accessible data transmission network such as the Internet while providing security to prevent unauthorized access to private data.
Many real estate loans employ mortgage insurance in order to allow a borrower to purchase property using a lower down payment than would otherwise be required. A mortgage insurance policy is purchased to protect the servicing entity servicing the mortgage. If a borrower defaults on an insured loan and the default is followed by a covered event which causes a loss to the mortgage servicing entity, the mortgage servicing entity may submit to a mortgage insurer a claim for payment under the terms of the insurance policy. One of the most important events giving rise to a claim is foreclosure and auction sale of the property. The foreclosure process typically ends with an auction sale, with the title to the property being transferred to the auction buyer and the auction proceeds being transferred to the holder of the mortgage. If the auction proceeds are sufficient to satisfy the mortgage, no payment is due under the mortgage insurance policy. Typically, however, the foreclosed property sells for less than the total debt on the mortgage. The total debt includes the unpaid principal balance, as well as expenses incurred and fees charged by the servicing entity, such as interest accruing after default, late payment charges, and expenses incurred by the servicing entity during the foreclosure process.
When the foreclosed property sells for less than the total debt, the servicing entity suffers a loss which is covered, fully or in part, by the mortgage insurance policy. The payment made under the policy typically covers the difference between the amount realized at the foreclosure sale and the amount covered by the policy, allowing for documented expenses as described in the master policy agreement between the servicing entity and the mortgage insurer. If the property is purchased by the servicing entity, the servicing entity typically files a claim to the mortgage insurer for an amount equal to the servicing entity's loss, limited by the amount of coverage.
The foreclosure bid by the servicing entity should be calculated to realize as much money as possible for the property, while allowing third parties to purchase the property if they offer an appropriate price. If the bid is properly calculated, an interested third party will be able to obtain the property for a fair price, and the servicing entity will not need to maintain and resell the property. If the foreclosure bid is inadequate, the servicing entity risks receiving less money than could be realized by purchasing and reselling the property. If the foreclosure bid is excessive, the servicing entity risks precluding third parties from buying the property, and being forced to resell the property for less than could have been obtained if a third party had been able to purchase the property and relieve the servicing entity of maintenance and resale expenses.
Because the mortgage insurer covers losses resulting in shortfalls of the net sale price of the property, many insurers provide bidding instructions for servicing entities. These instructions are calculated to produce a bid that will either obtain the property for the mortgage servicer at a reasonable price in relation to its value, or alternatively to allow an interested third party to obtain the property at a reasonable price. The instructions need to meet state requirements, and to take into account the current value of the property, the amount owing on the property, the costs and fees that are incurred during delinquency of the mortgage and the costs incurred in completing the foreclosure. Preferably, the process of producing the instructions also takes into account the possibility that the value of the property is below the original appraised value at the time the mortgage was secured, and allows for the investigation of the circumstances leading to the decrease in value.
Mortgage insurers often provide services to many clients, distributed over a wide geographic area. When a client needs to make a foreclosure bid, it naturally wishes to receive bidding instructions that are delivered promptly, and are unambiguous and easy to understand. In addition, it would be highly advantageous if the process of generating bids could be as flexible as possible, so that the bid amount could take into account the specific circumstances of the particular foreclosure sale under consideration. Prior art techniques for providing foreclosure bidding instructions include providing generalized paper instruction cards to clients. These cards may include a bidding chart, which may be consulted by the user in order to examine bidding rules for a particular state. The chart may include a percentage, so that the user can determine a bid amount by multiplying the percentage by the current value. In making a bid, the user also takes the total debt, including expenses and fees, into account. For example, if the percentage is 90%, the user may use this percentage to estimate the value of the property, and employs this estimated value in making a bid. In making a bid, the user also takes into account the total debt. For example, if a third party is bidding at the auction of a property whose value is $80,000, and the total debt is $50,000, the mortgage insurance client might bid up to $50,000 because that would be the amount needed to satisfy the mortgage.
Such generalized paper instructions may be misinterpreted by a user, and also require computation by the user, raising the possibility of errors. In addition, the use of such instructions does not provide any instantaneous and automatic way of reporting anomalies, such as unusual declines in the property value. Alternative techniques involve voice response telephone systems that provide instructions, but these may be inconvenient for a user.
Many mortgage insurance clients and mortgage insurers have access to data processing systems and networks with substantial capacity and capability, and infrastructure exists for easy and secure information transfer between mortgage insurance clients and mortgage insurers. There exists, therefore, a need for automated systems and techniques for providing foreclosure bid instructions that are clear and unambiguous, in a way that is easy for a user to understand, that provides flexibility in the computation of instructions and that includes an automatic and convenient way to report relevant information to a mortgage insurer.